New technological advances have left no sector indifferent. This is the case of trading with the new processes and techniques put in place, including algorithmic trading. Thus, this type of trading accessible to all is gaining more and more followers.
Driven by the desire to have effective trading solutions, many players are turning to algorithmic trading. In this article, you will learn what algorithmic trading is from the brokers who offer this service. We will also present the best tools, strategies, advantages of this type of trading. Check out this complete beginner’s guide.
Algorithmic trading software
Trading software is a portal that allows you:
- Access the stock market
- To do analyzes
- To exploit the indicators
- To benefit from the options offered by your broker.
Algorithmic trading software, how does it work?
Trading software is a computer system that makes it possible for a trader to place orders and monitor their trading account. This is done through a financial intermediary represented by the broker. One of the advantages of this tool is its accessibility. From anywhere and at any time, you can carry out your activities there.
The software receives a large volume of data in real time. These provide information on the price of the asset, spread differences and price changes since the opening of the market. You will find the charts, your trades that are executed, your capital, the margin, information on the financial market.
The computer system also serves as technical analysis software. Many elements are integrated there to make you study the market in depth. It is even possible to develop Expert Advisor there, which are trading automation robots.
Algorithmic trading, what is it?
Formerly reserved for an elite, in a few clicks, it is now possible to carry out stock market transactions. But that’s not all! The battle is on another level. It is about speed and precision in operations. The use of more efficient and rapid solutions becomes everyone’s quest. This is the era of algorithms in the trading world.
Through the various previous information, it is easy to get an idea of the concept of algorithmic trading. To be sure of your ideas, discover the definition and the mode of operation of algorithmic trading.
Definition of algorithmic trading
The algorithmic trading still known as automated trading name or automatic trading uses Traders robots to execute orders on the market. It is a strategy that is based on the potential of software and computer systems as well as mathematical principles for speculating.
How algorithmic trading works
Algorithmic trading primarily uses the EA system to function. There are two modes of intervention: assisted operations and automated trading.
Algorithm-assisted stock market transactions are very common. These are suggestions that are offered to investors. They are free to use them or not to do so. These suggestions appear as an aid in order to guide the choices and the decision of the operator. All actions are manual and come from the trader.
Automated trading is an aspect that leaves control to a robot and its algorithm. The trader is a novice trader or has little time to spend in the market. The robot is responsible for carrying out the transactions for him. Many parameters are predefined in order to facilitate the robot’s actions. The algorithm thus has control over the trading parameters. It decides its opening time, when it will close, the price, the volume of the transaction. In this process, human intervention is not necessary. This is referred to as high frequency trading.
Beforehand, there is an analysis of the market data. It allows the robot trader to determine the likely opportunities. Once these are detected, he will transform them into action by opening an order. At each position, small volumes are taken into account. It is the accumulation of many small profits that determines the size of the gains.
What can you trade with algorithmic trading?
Algorithmic trading can adapt to all markets. You can trade on in particular:
- The forex market with all currency pairs including EUR / USD, GBP / USD, USD / CHF
- Commodities too, with gold, oil, etc.
- The index market
- The crypto-currencies market including the most promising.
Benefits of algorithmic trading
The advantages of trading of this type are numerous, but we can remember three main ones.
Rational and non-emotional trading
Algorithmic trading with the presence of robots banishes the emotional aspect that a human can feel. It should be remembered that emotions greatly alter judgment and prevent the taking of certain opportunities.
A tool with superhuman capacities
In addition, the field of action of robots is very wide. They monitor the market all day long without interruption, as long as the market is open. Something that even an invested trader would have a hard time doing.
The amount of data, of operations, managed simultaneously is enormous. They are thus performances impossible to attribute to a person.
Trading that allows for more liquidity
Finally, market distortions have less impact. They are more or less well taken into account. In addition, there is significant liquidity thanks to the many open orders. Spreads and costs are therefore reduced, which is advantageous for the trader.
Auto trading removes the emotional aspect
One factor that often betrays traders is emotion, which can lead them to make bad choices under the influence of stress, excitement or whatever. On the contrary, auto trading is a rational trading method that works according to pre-established parameters.
Orders are executed according to what has been programmed upstream. There is no longer any place for emotion when using automatic trading software. Your traders, therefore, operate rationally and follow the market without subjectivity.
Algorithmic trading is for everyone. Its democratization with platforms, software and robot traders has made it an opportunity not to be missed. However, it takes determination to prove yourself in the long term. It is a great way to achieve financial freedom.